Friday, October 06, 2006

YouTube is not Googly

Kevin Delaney at the WSJ says that "Google Inc. is in talks to acquire popular video-sharing site YouTube Inc. for roughly $1.6 billion."

This is a horrible idea.

YouTube is a collection of uploaded content. They have no interesting technology. All Google would be buying is YouTube's existing content and user base.

Google has never been about owning content and users before. Google makes it easier to find other people's content. Google's core strength is in helping people find and discover information, not in controlling information and people.

This merger would be classic deworsification. If it happens, GooTube will be exactly what Microsoft and Yahoo have been waiting for, a lovely little distraction for Google.

Update: On this note, Danny Sullivan points out an LA Times article that said, "Google admitted this year that its internal audits discovered that the company had been spending too much time on new services to the detriment of its core search engine."

Update: Om Malik says Google is a loser in this because he thinks "this is Compaq-DEC, Skype-eBay kind of a deal for them in the long run." John Battelle notes that "this marks Google's first significant out of brand acquisition, the company's first true brand-management challenge."

Update: When we look back at this merger in a few years, I suspect it will be seen as when Google jumped the shark. It is the day Google loses its focus on technology and begins a stumbling effort at trying to become a media company.

Update: Om Malik adds, "It is the distraction factor ... The copyright issues and all those other problems are going to strain google where it is weakest - management and control."

Update: Microsoft CEO Steve Ballmer says, "Right now, there's no business model for YouTube that would justify $1.6 billion. And what about the rights holders? At the end of the day, a lot of the content that's up there is owned by somebody else. The truth is what Google is doing now is transferring the wealth out of the hands of rights holders into Google." [via Todd Bishop]

Update: Ephraim Schwartz at InfoWorld says of the Google-YouTube deal:

YouTube gets something like 100 million page views per day. Does it matter that 99 percent of them are a waste of time? That these homemade videos have no redeeming quality? Not in the slightest. To whom should it matter?

Google's mission is to organize the world's information and make it universally accessible and useful.

If 99% of YouTube page views are a waste of time with no redeeming quality, the YouTube deal is a violation of Google's mission. YouTube content is not useful.

Update: No matter what you think of the YouTube deal, you have to admit that this part of it just reeks:

YouTube's deals with Universal and Sony BMG came hours before it announced its deal with Google ... the music companies rushed to complete the deal ahead of the YouTube deal, in part so that it could benefit in the jump in YouTube's value.

Update: Mark Cuban posts some rumors about the details of the Google-YouTube deal that, if true, make Google's biz dev folks look pretty darn evil. Mike at TechDirt sums it up: "The music labels effectively taking a bribe to cause trouble for Google/YouTube video competitors, ignoring YouTube to let it grow for a while, and pocketing all of the money without giving it back to the artists they supposedly represent ... This whole thing reads pretty sleazy."

Update: The FT reports that "Google is engaged in a frantic round of negotiations ... [to] ward off a potentially crippling round of lawsuits ... offering tens of millions of dollars in upfront payments for the right to broadcast their video content legally on YouTube .... [and even] offering one $100m to license its content over a two-year period." [via Paul Kedrosky]

Update: Four months later, SeekingAlpha reports, "Despite months of negotiations, Google has been unable to secure a deal to post content from any major media company on YouTube."

Update: Liz Gannes at GigaOm reports that "Google is having quite a bit of trouble ... figuring out how to monetize YouTube and make it legit."

Update: Five months later, Viacom sues GooTube for (insert Austin Powers voice here) one billion dollars. While much of the commentary I have seen seems to be favorable toward Google, I am more inclined toward the opinions of Don Dodge and Mark Cuban who argue that Viacom cannot lose by fighting hard against Google.

Update: About two years later, not only is YouTube failing to make money ("YouTube is still finding it hard to make money ... revenues at around $90 million for 2008" [1] and expenses are high), but also the lawsuits are creating nasty problems for Google as they creep through the courts (e.g. "Google Told to Turn Over User Data of YouTube" [2]).

All of this comes on top of new revelations from Chad Hurley that YouTube needed a Google bail-out at the time of the acquisition ("[Another VC round] would have been hard, we would have been even more threatening to [others] ... and it would have been hard for us to operate in an efficient way. So we decided Google was going to be our answer ... I don't really think [continuing growth] would have been possible without the help of Google." [3]).

Update: Four years later, Nick Bilton at the New York Times writes, "Although Google's purchase of YouTube hasn't paid of financially, it has clearly made Google a giant in the world of online video, displaying more than 13 billion videos during the month of April." So, exactly as predicted, the purchase hasn't paid off financially, but has made Google a content provider.

Update: Nearly five years later, YouTube still is only "close to being profitable", still not yet profitable. I doubt that is what Google had in mind when it acquired YouTube.

16 comments:

Do you say that Google+YouTube is bad idea solely because of the copyright issues (described by Mark Cuban and you too), or do you think in general owning content is a bad idea for Google.

Historically, Yahoo has been moving in the direction of becoming a media company (at least since Terry Semel came on board) while Google has stuck to its core competency - search.

But doesn't owning more content give you the ability to place ads around that content, and develop technology to search that content?

In other words, here's what I think Google is getting out of the YouTube deal (in addition to the headache of dealing with copyright issues):1. Lots of content2. Lot of users that view the content, and the ads that Google might show on/around the content in the future.3. The video search technology that YouTube has developed.

Isn't the game ultimately about grabbing mindshare? If you go to Google for more things, they'll learn more about you, and provide you a better experience. That will make you go back to them even more. Rinse, repeat.

So within weeks of Steve Yegge's fluff-laden post extolling the wonders of Google's "good agile" environment the founder of the company admits that the result of this nearly zero-management environment is that the companies revenue generating, actually released products suffer in favor of whatever new thought-exercises come from anyone and everyone? I'm shocked, shocked I tell you.

The replies to Steve's post were informative. Google can release whatever it wants because the big search advertising revenue covers everything else (reminds me of Microsoft). Youtube, perhaps, would be a way to capture another huge set of eyeballs for that advertising, giving the immense egos of all the SDEs at google more time to come up with the next big thing.

This also reminds me of your post about amazon's A-B testing (which I think was originally a great idea). However, the relentless focus on "data" has made amazon's web site a complete disaster. Every new feature that "moves the needle" in a mildly positive direction has been added, while no one is minding the larger, long-term architecture of the buying experience. I find it nearly impossible to figure out where I am on a product page, shopping cart, etc. and only use amazon if I'm buying a single, specific product. The browing and search experience suck.

I counter these examples (google and amazon) with apple, which clearly manages to innovate, while maintaining tight control over the UI and without the massive data (in the sense of the world's biggest customer bases) of a microsoft, google or amazon (or even a walmart).

"... the relentless focus on "data" has made amazon's web site a complete disaster. Every new feature that "moves the needle" in a mildly positive direction has been added ..."

Anonymous, I am afraid you have this exactly backwards. The reason that the pages get so crowded is that managers launch pet projects without a proper A/B test to determine whether the feature is worthwhile.

In fact, there is an amusing pattern at Amazon where the home and detail pages get heavier and heavier with all kinds of stupid features, then someone gets annoyed and runs an A/B test with a simplified, rationalized page. That test inevitably wins, so the simplified page sticks. Unfortunately, over time, new pet features start creeping back, and the cycle repeats.

I think the data-driven A/B tests at Amazon are part of the solution, not part of the problem.

pranav hits on the right things, but it's #2 that's the key one. If you assume there's a long-term play around video ads, the YT purchase gives Google 100% of ad placement on the most important video network around, and gives them enough inventory to build a video ad network around. Either you buy YT or you lock them in a long-term ad contract. Go back two years and which do you think Google would rather have done with Myspace?

I don't disagree that the operational costs and potential distractions are real, but evaluate it as an ad opportunity and it's a different equation.

The problem with all of these transactions (be it the Amazon A-B test, the mergers, or the acquisitions), is that they get measured once then declared valuable and successful. But reality is an ever evolving environment, and what may have been a great idea yesterday, is not guaranteed so today. So any A-B test however successful, needs to be continously re-evaluated, and any merger or acquisition should continously be considered to be follwed by a diverstiture of the same or another asset.

This comment confused me. You wrote: "It is the day Google loses its focus on technology and begins a stumbling effort at trying to become a media company." Google has always been a media company! They just refused to acknowledge it by hiding behind the technology veneer. I agree with you that this is an odd acquisition, but Google's morphing into a media company isn't the reason why. Eric.

Hi, Eric. I mean that Google will be moving from a company driven by technology (the Google cluster and MapReduce/Sawzall/GFS/BigTable on top of it, PageRank, automated machine translation, question answering) to one driven by media (acquisitions, biz dev deals, licensing content).

Until now, Google has competed on technology. They sought to build better products through brainpower, not through positioning.

I think this YouTube deal may be a sign of a major shift at Google.

Does Google now see its path to success paved with the right handshakes and embraces, not the intellectual might within its walls? Is market power, not brain power, now their goal?

However, I think the shift has been going on behind the scenes for quite some time. Look, for example, at all these products that have been released relatively recently: Google Calendar, Google Finance, Google Talk, Google Pack, Google Page Creator, Google Reader, SketchUp, Google Spreadsheets, Google Store, etc. I see a whole lot of finance trackers, date schedulers, web page hosting, 3d modeling tools, office apps, feed readers, etc. But where is the search?

Where is the Google face search for images, so that I can find all the images of my cousin Tom both in my Picasa albums as well as across the web? Where is the Google image search by color or by sketching? Where is the Google audio podcast search, to let me search actual voices within podcasts? Where is the Google plugin for iTunes, to let me search for music by tempo, rhythmic structure, mood, instrumental timbre, or whatever else might be similar to another song that I currently like?

None of that exists.

So not only has Google not been innovating on search for a while, it also has been acquiring content for quite some time now. At the very simplest level, Keyhole (Google Earth) and related data (such as that from Google Maps) are not data that they crawled and found on the web. They bought that data. Similarly, Google Print goes out of its way to acquire book page images, trawling through library collections to obtain content. So for quite some time, Google has been a content player.

The YouTube purchase only brings all these facts to the fore. YouTube is not about search, but neither was Pack, Page Creator, Spreadsheets, etc. YouTube is about acquiring content, and so was Earth, Print, etc. None of these previous projects is quite the scale of YouTube, but if we look at Google's DNA, what it has been doing over the last three+ years, we frankly should not be surprised by this.

Not really, no. Google doesn't break out the numbers but, eight years later, YouTube still doesn't appear to be profitable, so it's hard to justify the acquisition as a business investment. And hosting content is still a distraction from making the world's information universally accessible. I like YouTube, don't get me wrong, but I don't see how owning it (as opposed to partnering with it) is helping Google.